Is the following formulation of the reduction correct?
EDIT:
Undecidability of an (positive) existential theory $T$ is proved often by reducing an other (positive) existential theory $T'$, which is known to be undecidable,to $T$, i.e., by a mapping from the (positive) existential sentences in the language of $T'$ to the (positive) existential sentences in the language of $T$, $$\phi' \mapsto \phi$$ such that $T'$ proves $\phi'$ iff $T$ proves $\phi$.
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Is everything correct? Could I improve something at the formulation?
$\phi$ is a formula of $T$, or not?
I'm not quite sure what you mean by "interpretation" - really, a reduction of $T$ to $T'$ should just be a function $f$ from the sentences in the language of $T$ to the sentences in the language of $T'$, such that $T$ proves $\varphi$ iff $T'$ proves $f(\varphi)$. This is much broader than a (computable) interpretation.
Regardless of exactly how you define interpretation, your second argument is wrong: saying "$T$ is reducible to $T'$" means that $T$ is no more complicated than $T'$. In particular, $T'$ can be extremely complicated and $T$ can be extremely simple. The only way to get a contradiction is to interpret a complicated theory inside a simple theory.